Manage that Revenue For Maximum Effect

The right technology is key to ensure you are getting the best possible rate for every room, every night.
By Beth Kormanik

It's a question as basic as any in the hotel industry: What should the room rate be?

Thanks to Internet travel sites that allow travelers to compare rates at hundreds of hotels, people are as savvy as ever about how much they should spend on a stay. And the competition is fierce for these customers.

The answer, according to Jean-Francois Mourier, CEO & Founder of RevPar Guru, is to let technology do the work.

"Our way of thinking and looking at things is the way of the future," he said. "It's only a matter of time until people get there."

The idea behind RevPar Guru is to have an automated system that culls data from all competing hotels in the market, not just comp sets, and combines that with the hotel's booking data in a custom algorithm. Then it constantly adjusts depending on bookings, much like the airlines do. If there are a flurry of bookings, the system recognizes that the price may have been too aggressive and raises the rate.

Mourier is a former investment banker who at one point managed $5 billion in assets for ING and went on to work for Merrill Lynch. After a move to Miami for personal reasons, he began working for his brother-in-law at The Palms hotel. There, he conceived of the idea of using technology to analyze booking patterns and automate rate changes. Now, he said, the hotel is amply profitable and has been 90 percent full for the past five years. The business he spun out of it, RevPar Guru, is aimed to help other hotels do the same.

It couldn't come at a more opportune time, when experts such as Robert Mandelbaum, Director of Research Information Services with PKF Hospitality Research, are forecasting severe RevPar drops. PKF Hospitality Research estimates that this year RevPar in all U.S. hotels will fall 13.7 percent from 2008 to $55.45. For luxury hotels, the drop is even steeper, at 17.6 percent from 2008 to $161.52.

Many industry experts have warned against dropping room rates and have encouraged hotels to pursue value-added strategies such as offering free breakfast or a fourth night free. But Mourier disagrees. He believes it's more important for most hotels to keep rooms occupied and build brand loyalty.

"If you're a brand like the Ritz Carleton or the Regent, very expensive hotels, the strategy would be to keep rates high," he said. "They will suffer tremendously in their revenues, but their reputation as super high-end will be intact. For majority of hotels it will be different."

"The way I look at it, either you can have a business and be proud to have the highest rate in the world and watch revenue shrink, or you take a bit of your pride away and you run a business. Running a successful business is about being profitable. You do this by having occupancy."

Having an automated strategy is essential in this market, Mourier said, especially as guests are seeking out deals and the booking window has shrunk. In the past, he said the average hotel guest booked 60 days in advance. Now about half the bookings happen within the last two weeks. The result can be a nightmare for revenue managers trying to set rates, he said. It becomes especially hard to manage because people are now booking online, shopping when a revenue manager is asleep at home and cannot reassess the rate strategy.

"The revenue manager is not doing anything to protect the property from overselling, and he's not reassessing the strategy based on new bookings," Mourier said. "It's not like software takes over for revenue manager. but it becomes a huge help so not only can they sleep at night, they know their revenues can be increased. It's like having 100 people working for the revenue manager all at once."

Real-time data also is essential, he said, because of the economy. The past -- when times were flush -- isn't a good indicator for future rates right now.

"This year, if you're using a system that takes in a lot of history, you're going to get it totally wrong," he said. "We have to make it more complex."

Even though hotel budgets have constricted, Mourier said it hasn't been a hard sell to get people to understand his product.

"In this particular year, everyone is coming down off a cliff basically, so they need to look at ways to stop the fall," he said. "That's why we get a dramatic increase in interest. There is a better way to do things. Intelligence and science, they can do great things."

In addition to the Palms in Miami Beach, RevPar Guru also has hotel clients in Coco Beach, FL; Washington, DC; and Copenhagen, Denmark. The company is expanding but made the strategic decision to limit itself to only about 10 percent of each market: "If we give it to everybody, our system does not have a massive benefit," Mourier said. "Then everyone is even."

Its target hotels are three stars and up with an average of 200 rooms.

But would a constantly moving target frustrate potential guests? It's possible, Mourier concedes, but adds, "The consumers are also much more likely to book the hotel because the price is right."



Credit
Beth Kormanik
Managing Editor
Buyer Interactive

Bio: Beth Kormanik is managing editor of Buyer Interactive and editor of Hotel Interactive. She previously covered politics, government and higher education for the Florida Times-Union in Jacksonville, Fla. While at the Times-Union she won several state and regional awards, including the 2008 Freedom of Information award from the Florida Society of News Editors and the top honor in the 2007 Florida Bar media awards for large newspapers. Beth also was a ... more

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